On 14 December 2017 Disney and 21st Century Fox agreed the sale of Fox’s studios, pay-TV channels and international businesses for about $52.4 billion in stock. What is being bought, what is left out and what still needs approval.
On 14 December 2017 The Walt Disney Company and Twenty-First Century Fox (21st Century Fox) announced a definitive agreement under which Disney will acquire 21st Century Fox, including the Twentieth Century Fox film and television studios and its cable and international television businesses, for about $52.4 billion in stock. Including the net debt Disney will assume, about $13.7 billion, the total transaction value is about $66.1 billion. The boards of both companies have approved the deal.
What Disney is buying
In film it gets Twentieth Century Fox, Fox Searchlight Pictures and Fox 2000, with franchises such as Avatar, X-Men, Fantastic Four and Deadpool. In television, it gets the production units Twentieth Century Fox Television, FX Productions and Fox21, behind series such as The Simpsons, Modern Family and This Is Us. Disney also takes FX Networks, National Geographic Partners, Fox Sports Regional Networks, Fox Networks Group International and Star India, and Fox’s stakes in Hulu, Sky, Tata Sky and Endemol Shine Group. In Hulu, Disney would gain control.
The European piece is Sky. Fox owns 39.1% of the pay-TV company, which serves nearly 23 million households in the UK, Ireland, Germany, Austria and Italy, and it is pursuing its offer for the remaining 61%, which it expects to complete, subject to the necessary approvals, by 30 June 2018. If it does, Disney would take full ownership of Sky and its debt. Fox Networks International has more than 350 channels in 170 countries, and Star India has 69 channels reaching 720 million viewers a month.
What is left out
Immediately before the deal, 21st Century Fox will separate the Fox Broadcasting network and stations, Fox News Channel, Fox Business Network, FS1, FS2 and Big Ten Network into a newly listed company, which will be spun off to its shareholders. That “New Fox” is not part of what Disney is buying.
Fox shareholders will receive 0.2745 Disney shares for each Fox share, a ratio set on the 30-day average price of Disney stock. Disney will issue about 515 million new shares, around 25% of its capital after the deal. The ratio will be adjusted just before closing according to the taxes generated by the spin-off; the initial figure assumes that the new company will pay Fox a cash dividend of $8.5 billion to cover them.
The announcement expects cost savings of at least $2 billion and says the deal should add to earnings, before the effect of purchase accounting, from the second fiscal year after closing. Robert Iger will stay on as Disney’s chairman and chief executive until the end of 2021, at the request of both boards.
What still needs approval
The deal needs the approval of Disney and Fox shareholders, US antitrust clearance (under the Hart-Scott-Rodino Act) and that of other regulators outside the United States, plus the usual closing conditions. The announcement does not give a closing date.
Disney says the purchase will strengthen its direct-to-consumer offering, including Hulu and the services it has announced under the Disney and ESPN brands. For companies in the sector (cinemas, broadcasters, platforms, advertisers), the question is how this concentration of content and channels would affect their contracts and suppliers. Anyone holding shares in Disney or Fox, directly or through funds, can follow the terms of the share exchange and its tax treatment. Ask your adviser how to apply it to your case.
The deal is agreed but not closed: shareholders and regulators still have to approve it.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
